loader

Disclaimer

The Bar Council of India does not permit advertisement or solicitation by advocates in any form or manner. By accessing this website, www.khaitanco.com, you acknowledge and confirm that you are seeking information relating to Khaitan & Co of your own accord and that there has been no form of solicitation, advertisement or inducement by Khaitan & Co or its members. The content of this website is for informational purposes only and should not be interpreted as soliciting or advertisement. No material/information provided on this website should be construed as legal advice. Khaitan & Co shall not be liable for consequences of any action taken by relying on the material/information provided on this website. The contents of this website are the intellectual property of Khaitan & Co.

Please accept the above
Close

Search

See all results for ""

Inter-Branch Services | Employee Cost

29-Aug-2018

Introduction

The Authority of Advance Ruling (AAR) in the state of Karnataka, in its order in Columbia Asia Hospitals Private Limited (the Applicant) dated 27 July 2018, made critical observations concerning the taxability of employee cost at a corporate office under Goods and Services Tax (GST).

Background

The Applicant runs a chain of modern hospitals across India. Accounting, administration and maintenance of IT system are centralised and managed by the corporate office. While the corporate office was recharging the cost of sourced inward supplies like rent on immovable property, consultancy services, communication services, etc. to each hospital on the basis their turnover, the employee cost was not recovered.

The issue before the AAR was whether the cost incurred towards employees working at the corporate office was to be recharged and subjected to GST? 

Observations of the AAR

The employer-employee relationship exists only between corporate office and the employees. The other registered offices are distinct persons and therefore the employees working at the corporate office would not have employer-employee relationship with such other offices. Hence, the provision of Entry 1 of Schedule III of the Central GST Act, 2017 would not apply to service from employee to corporate office.

Distinct persons are also related persons and therefore supply of goods and services, even if made without consideration would be subject to GST under Entry 2 of Schedule I of the Central GST Act, 2017.

The value of such services would include all costs, viz. employee cost, etc. at the time of valuation of services provided by corporate office to the other units (distinct entities).

Comment

The views of the AAR that employer-employee relation must exist at distinct person level overturns the contemporary view that such employer-employee relation is relevant only at entity level.

While the ratio by an AAR is binding only on the Applicant, this ruling, if applied by the tax authorities in other cases will result in an upheaval as entire cost including employee cost incurred at the corporate / head office could become susceptible to GST. It may also impact entities with multi-locational presence, whether engaged in making taxable supplies or not.

  •  Dinesh Agrawal (Executive Director), Ankit A. Shah (Principal Associate) and Pranay Sahay (Senior Associate)

For any queries please contact: editors@khaitanco.com

Dinesh Agrawal (partners)

We have updated our Privacy Policy, which provides details of how we process your personal data and apply security measures. We will continue to communicate with you based on the information available with us. You may choose to unsubscribe from our communications at any time by clicking here.

For private circulation only

The contents of this email are for informational purposes only and for the reader’s personal non-commercial use. The views expressed are not the professional views of Khaitan & Co and do not constitute legal advice. The contents are intended, but not guaranteed, to be correct, complete, or up to date. Khaitan & Co disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident or any other cause.

© 2021 Khaitan & Co. All rights reserved.

Mumbai

One Forbes
3rd & 4th Floors, No. 1
Dr. V. B. Gandhi Marg
Fort, Mumbai 400 001

Chennai

119/65, First Floor
Dr Radhakrishnan Salai
Mylapore
Chennai 600 004,
India

Noida

Max Towers
7th & 8th Floors
Sector 16B, Noida
Gautam Buddh Nagar
201 301 India

Singapore

Ocean Financial Centre
#37-02 10 Collyer
37th Floor Quay
Raffles Place 049315,
Singapore